Intermediate Accounting 2 - Exam 1 Chap. 15, 16, & 17

On December 1, Year 4 Line Corp. received a contribution of 2,000 shares of its $5 par value common stock from a shareholder. On that date the stocks fair value was $35 per share. The stock was originally issued for $25 per share. By what amount will this contribution cause total equity to decrease if Line accounts for treasury stock using the cost method?

$0

At year end, Rim Co. held several investments with the intent of selling them in the near term. The investments consisted of $100,000 8%, 5 year bonds, purchased for $92,000, and short term notes purchased for $35,000. At year end, the bonds were selling on the open for $105,000 and the short term notes had a market value of $50,000. What amount should rim report as trading securities in its year end balance sheet?

$155,000

In Year 1, Gar Corp. collected $300,000 as beneficiary of a key person life insurance policy carried on the life of Gar's controller, who had died in Year 1. The life insurance proceeds are not subject to income tax. At the date of the controller's death, the policy's cash surrender value was $90,000. What amount should Gar report as revenue in its Year 1 income statement?

$210,000

When the equity method is used to account for investments in common stock, which of the following affects the investor's reported investment income?

Goodwill amortization related to the purchase: No Cash dividends from Investee: No

The decision to elect the fair value option (FVO)

Is irrevocable until the next election date, if any.

Cross Corp. had outstanding 2,000 shares of 11% preferred stock, $50 par. These shares were not mandatorily redeemable. On August 8, Cross redeemed and retired 25% of these shares for $22,500. On that date, Cross's additional paid-in capital from preferred stock totaled $30,000. To record this transaction, Cross should debit (credit) its capital accounts as follows:

Preferred Stock $25,000 Additional paid in capital ($2,500) Retained earnings ----

Bonds that investors may present for payment prior to maturity are?

Redeemable bonds

When bond interest payments are sent to the owner of the bonds by the debtor, the bonds are called:

Registered bonds

The disclosure requirements for earnings per share do not apply to

Statements presented by wholly owned subsidiaries

In determining diluted earnings per share (DEPS), a potential common stock (PCS) was antidilutive in Year 2 and dilutive in Year 3. The potential common stock would be included in the computation for:

Year 2: No Year 3: Yes

On July 1, Vail Corp. issued rights to shareholders to subscribe to additional shares of its common stock. One right was issued for each share owned. A shareholder could purchase one additional share for 10 rights plus $15 cash. The rights expired on September 30. On July 1, the market price of a share with the right attached was $40, while the market price of one right alone was $2. Vail's equity on June 30 included the following: Common stock, $25 par value, 4,000 shares issued and outstanding $100,000 Additional paid-in capital $60,000 Retained earnings $80,000 By what amount should Vail's retained earnings decrease as a result of issuance of the stock rights on July 1?

$0

Ray Corp. declared a 5% stock dividend on its 10,000 issued and outstanding shares of $2 par value common stock, which had a fair value of $5 per share before the stock dividend was declared. This stock dividend was distributed 60 days after the declaration date. By what amount did Ray's current liabilities increase as a result of the stock dividend declaration?

$0

Poe Co. had 300,000 shares of common stock issued and outstanding at December 31, Year 1. No common stock was issued during Year 2. On January 1, Year 2, Poe issued 200,000 shares of nonconvertible preferred stock. During Year 2, Poe declared and paid $75,000 of cash dividends on the common stock and $60,000 on the preferred stock. Net income for the year ended December 31, Year 2, was $330,000. What should be Poe's Year 2 basic earnings per common share?

$0.90

On July 1, Year 1, Cody Co. paid $1,198,000 for 10%, 20 year bonds with a face amount of $1 million. interest is paid on December 31 and June 30. The Bonds were purchased to yield 8% Cody uses the effective interest rate method to recognize interest income from this investment. The bonds are properly classified as held to maturity. What should be reported as the carrying amount of the bonds in Cody's December 31, Year 1, balance sheet?

$1,195,920

On January 2, Year 1, Beal, Inc. acquired a $70,000 whole life insurance policy on its president. The annual premium premium is $2,000. The company is the owner and beneficiary. Beal charged officer's life insurance expense as follows: Year Life insurance expense 1 $2,000 2 $1,800 3 $1,500 4 $1,100 Total $6,400 In Beal's December 31, Year 4, balance sheet, the investment in cash surrender value should be:

$1,600

Zinc Co.'s adjusted trial balance at December 31, Year 6, includes the following account balances: Common stock, $3 par $600,000 Additional paid-in capital $800,000 Treasury stock, at cost $50,000 Net unrealized holding loss on available-for-sale securities $20,000 Retained earnings: Appropriated for uninsured earthquake losses $150,000 Retained earnings: Unappropriated $200,000 What amount should Zinc report as total equity in its December 31, Year 6, balance sheet?

$1,680,000

At the beginning of the fiscal year, June 1, Year 3 Piotrowski Corporation had 80,000 shares of common stock outstanding. Also outstanding was $200,000 of 8% convertible bonds that had been issued at $1,000 par. The bonds were convertible into 20,000 shares of common stock; however no bonds were converted during the year. The company's tax rate is 34%. Piotrowski's net income for the year was $107,000. Diluted earnings per share of Piotrowski common stock for the fiscal year ended May 31, Year 4, was:

$1.18

15.5.6. Smythe Co. invested $200 in a call option for 100 shares of Gin Co. $.50 par common stock when the market price was $10 per share. The option expired in 3 months and had an exercise price of $9 per share. What was the intrinsic value of the call option at the time of initial investment?

$100

Lem Co., which accounts for treasury stock under the par-value method, acquired 100 shares of its $6 par value common stock for $10 per share. The shares had originally been issued by Lem for $7 per share. By what amount would Lem's additional paid-in capital from common stock decrease as result of the acquisition?

$100

The following information was extracted from Gil Co.'s December 31 balance sheet: Non current assets: Available-for-sale debt securities (Carried at fair value) $96,450 Equity: Accumulated other comprehensive income (OCI) Unrealized holding gains and losses on available for sale debt securities -$19,800 Historical cost of the available for sale debt securities was:

$116,250

Bilco had 10,000 shares of common stock outstanding throughout Year 3. There was no potential dilution of earnings per share except that, in Year 2, Bilco agreed to issue 2,000 additional shares of its Stockton the former shareholders of an acquired company if the acquired company's earnings for any of the 5 years, Year 3 through Year 8, exceed $5,000. Results of operations for year 3 were: Net Income of Bilco $10,000 Net Income of acquired company $4,000 Consolidated net income $14,000 Diluted earnings per share for Year 3 on a consolidated basis is:

$14,000 / $10,000 = $1.40

Pear Co.'s income statement for the year ended December31, Year 1, as prepared by Pear's controller, reported income before taxes of $125,000. The auditor questioned the following amounts that had been included in income before taxes: -Equity in earnings of Cinn Co. $40,000 -Dividends received from Cinn 8,000 -Adjustments to profits of prior years for arithmetical errors in depreciation (35,000) Pear owns 40% of Cinn's common stock. Pear's December 31, Year 1, income statement should report income before taxes of?

$152,000

Cap Corp. reported accrued investment interest receivable of $38,000 and $46,500 at January 1 and December 31, Year 1, respectively. During Year 1, cash collections from the investments included the following: Capital gains distribution: $145,000 Interest $152,000 What amount should Cap report as interest revenue from investments for Year 1?

$160,500

On July 1, Year 1, Denver Corp. purchased 3,000 shares of Eagle Co.'s 10,000 outstanding shares of common stock for $20 per share but did not elect the fair value option. On December 15, Year 1 Eagle paid $40,000 in dividends to its common shareholders. Eagle's net income for the year ended December 31, Year 1, was $120,000 earned evenly throughout the year. In it year 1 income statement, what amount of income from this investment should Denver report?

$18,000

In Year 1, Chain, Inc. Purchased a $1 million life insurance policy on its president, of which Chain is the beneficiary. Information regarding the policy for the year ended December 31, Year 6, Follows: Cash surrender value, 1/1/Year 6 $87,000 Cash surrender value, 12/31/Year 6 $108,000 Annual advance premium paid 1/1/Year 6 $40,000 During Year 6, dividends of $6,000 were applied to increase the cash surrender value of the policy. What amount should chain report as life insurance expense for Year 6?

$19,000

In Year 1, Veras Corp. reported $3,500,000 of appropriated retained earnings for the construction of a new office building, which was completed in Year 2 at a total cost of $3,000,000. In Year 2, Veras appropriated $2,400,000 of retained earnings for the construction of a new plant. Also, $4,000,000 of cash was restricted for the retirement of bonds due in Year 3. In its Year 2 balance sheet, Veras should report what amount of appropriated retained earnings?

$2,400,000

Janson traded stock in Flax Co. marketable equity securities during Year 1 as follows: Number of shares. Price per purchased (sold). share Feb. 3, year 1 1,100. $11 April 15, year 1 2,500 $9 May 28, Year 1 (750) $13 July 5, Year 1 1,400 $12 Sept 30, Year 1 (4,000) $15 No other transactions took place for Flax during the remainder of the year. At December 31, Year 1, Flax is trading at $10 per share. Janson trades securities on a last in, first out basis. What amount is the net value of the investment in Flax at year end?

$2,500

During Year 6, Wall Co. purchased 2,000 shares of Hemp Corp. common stock for $31,500. They represent 2% of ownership in Hemp Corp. The fair value of this investment was $29,500 at December 31, Year 6. Wall sold all of the Hemp common stock for $14 per share on December 15, Year 7, incurring $1,400 in brokerage commissions and taxes. In its income statement for the year ended December 31, Year 7, Wall should report a recognized loss of

$2,900

During all of the year just ended, Littlefield, Inc., had outstanding 100,000 shares of common stock and 5,000 shares of noncumulative, $7 preferred stock. Each share of the latter is convertible into three shares of common. For the year, Littlefield had $230,000 income from continuing operations and a $575,000 loss on discontinued operations; no dividends were paid or declared. Littlefield should report diluted earnings (loss) per share (DEPS) for income from continuing operations and for net income (loss), respectively, of

$2.00 and -$3.00

On June 30, Year 2, Lomond, INC., Issued 20, $10,000, 7% bonds at par. Each bond was convertible into 200 shares of common stock. On January 1, Year 3, 10,000 shares of common stock were outstanding. The bondholders converted all the bonds on July 1, Year 3. The following amounts were reported in Lomond's income statement for the year ended December 31, Year 3: Revenues $977,000 Operating expenses -$920,000 Interest on bonds -$7,000 Income before income tax $50,000 Income tax at 30% -$15,000 Net Income $35,000 What amount should Lomond report as its Year 3 diluted earnings per share (DEPS)?

$2.85

Pare Inc. purchased 10% of Tot Co.'s 100,000 outstanding shares of common stock on January 2, Year 1, for $50,000. On December31, Year 1, Pare purchased an additional 20,000 shares of Tot for $150,000. There was no goodwill as a result of either acquisition, and Tot had not issued any additional stock during Year 1. Tot reported earnings of $300,000 for Year 1. What amount should Pare report in its December 31, Year 1, balance sheet as investment in Tot?

$200,000

On July 1, Year 4, Pell Co. purchased Green Corp. 10-year, 8% bonds with a face amount of $500,000 for $420,000. The bonds are classified as held-to-maturity, mature on June 30, Year 14, and pay interest semiannually on June 30 and December 31. Using the interest method, Pell recorded bind discount amortization of $1,800 for the 6 months ended December 31, Year 4. From this long-term investment, Pell should report Year 4 revenue of:

$21,800

In September Year 1, Cal Corp. made a dividend distribution of one right for each of its 240,000 shares of outstanding common stock. Each right was exercisable for the purchase of 1/100 of a share of Cal's $50 variable rate preferred stock at an exercise price of $80 per share. On March 20 Year 8, none of the rights had been exercised, and Cal redeemed them by paying each shareholder $0.10 per right. As a result of this redemption, Cal's equity was reduced by

$24,000

On February 1, Lopez Corporation issued 1,000 shares of its $10 par common and 2,000 shares of its $10 par convertable preferred stock for a lump sum of $40,000. At this date, Lopez's common stock was selling for $18 per share and the convertible preferred stock for $13.50 per share. The amount of proceeds allocated to Lopez's preferred stock should be

$24,000

Larkin Co. has owned 25% of the common stock of Devon Co. for a number of years, and has the ability to exercise significant influence over Devon. The following information relates to Larkin's investment in Devon during the most recent year: Carrying amount of Larkin's investment in Devon at the beginning of the year $200,000 Net income of Devon for the year 600,000 Total dividends paid to Devon's stockholders during the year 400,000 What is the carrying amount of Larkin's investment in Devon at year end?

$250,000

On December 31, Ott Co. had investments in equity securities as follows: Cost Fair Value Man Co. $10,000 $8,000 Kemo, Inc. $9,000 $11,000 Fenn Corp. $11,000 $9,000 $30,000 $28,000 Ott's December 31st balance sheet should report the equity securities as:

$28,000

On January 2, Year 1, Kean Co. purchased a 30% interest in Pod Co. for $250,000. On this date, Pod's equity was $500,000. The carrying amounts of Pod's identifiable net assets approximated their fair values, except for land whose fair value exceeded its carrying amount by $200,000. Pod reported net income of $100,000 for Year 1, and paid no dividends. Kean accounts for this investment using the equity method. In its December 31, Year 1, balance sheet what amount should mean report as investment in Pod. Co?

$280,000

The following data are extracted from the equity section of the balance sheet of Ebbs Corporation: 12/31/Yr 6 12/31/Yr 7 Common stock ($2 par value) $100,000 $102,000 Paid-in capital in excess of par $50,000 $58,000 Retained Earnings $100,000 $104,600 During Year 7 the corporation declared and paid cash dividends of $15,000 and also declared and issued a stock dividend. There were no other charges in stock issued and outstanding during year 7. Net income for Year 7 was:

$29,600

Smith Corporation had net income for the year of $101,504 and a simple capital structure consisting of the following common shares outstanding: Months Outstanding Number of shares January-February 24,000 March - June 29,400 July - November 36,000 December 35,040 Total 124,440 Smith Corporation's basic earnings per share (rounded to the nearest cent) were:

$3.20

A company had the following outstanding shares as of January 1, Year 2: Preferred stock, $60 par, 4%, cumulative 10,000 Shares Common stock, $3 par 50,000 Shares On April 1, Year 2 the company sold 8,000 shares of previously unissued common stock. No dividends were in arrears on January 1, Year 2, and no dividends were declared or paid during Year 2. Net income for Year 2 totaled $236,000. What amount is basic earnings per share (BEPS) for the year ended December 31, Year 2?

$3.79

The following information pertains to Lark Corp.'s available for sale debt securities: December 31 Year 2 Year 3 Cost $100,000. $100,000 Fair value: $90,000. $120,000 Differences between cost and fair values are not due to credit losses. The decline in fair value was properly accounted for at December 31, Year 2. Ignoring tax effects, by what amount should other comprehensive income (OCI) be credited at December 31, Year 3?

$30,000

East Co. issued 2,000 shares of its $5 par common stock to Krannik as compensation for 1,000 hours of legal services performed. Krannik usually bills $200 per hour for legal services. On the grant date of the shares, the stock was trading on a public exchange at $160 per share. By what amount should the additional paid-in capital account increase?

$310,000

On March 4 Year 4 Evan Co. purchased 1,000 shares of LVC common stock at $80 per share. On September 26, Year 4, Evan received 1,000 stock rights to purchase an additional 1,000 shares at $90 per share. The stock rights had an expiration date of February 1, Year 5. On September 26, Year 4, LVC's common stock had a fair value, ex- rights, of $95 per share, and the stock rights had a fair value of $5 each. What amount should Evan record on September 26, Year 4 , for investment in stock rights ?

$4,000

Weaver Company had 100,000 shares of common stock issued and outstanding at January 1. On July 1, Weaver issued a 10% stock dividend. Unexercised call options to purchase 20,000 shares of Weaver's common stock (adjusted for the stock dividend) at $20 per share were outstanding at the beginning and end of the year. The average market price of Weaver's common stock (which was not affected by the stock dividend) was $25 per share during the year. Net income for the year ended December 31 was $550,000. What should be Weaver's diluted earnings per share (DEPS) for the year?

$4.82

Arp Corp.'s outstanding capital stock at December 15, Year 4, consisted of the following: - 30,000 shares of 5% cumulative preferred stock, par value $10 per share, fully participating as to dividends. No dividends were in arrears. -200,000 shares of common stock, par value $1 per share On December 15, Year 4, Arp declared dividends of $100,000. What was the amount of dividends payable to Arp's common shareholders?

$40,000

On December 31, Pack Corp.'s board of directors canceled 50,000 shares of $2.50 par value common stock held in treasury at an average cost of $13 per share . Before recording the cancellation of the treasury stock , Pack had the following balances in its equity accounts: Common stock $540,000 Retained Earnings $900,000 Treasury stock , at cost $650,000 In its balance sheet at December 31 , Pack should report common stock outstanding of

$415,000

Sage, Inc., bought 40% of Adams Corp.'s outstanding voting common stock on January 2 for $400,000, which equaled a proportionate share of the fair value of the net assets. The carrying amount of the net assets at the purchase date was $900,000. Fair values and carrying amounts were the same for all items except for plant and inventory, for which fair values exceeded their carrying amounts by $90,000 and $10,000, respectively. The plant has an 18-year life. All inventory was sold during the year. During the year, Adams reported net income of $120,000 and paid a $20,000 cash dividend. What amount should Sage report in its income statement from its investment in Adams for the year ended December 31?

$42,000

On January 2, Well Co. purchased 10% of Rea, Inc's outstanding common shares for $400,000, which equaled the carrying amount and the fair value of the interest purchased in Rea's net assets. Well did not elect the fair value option. Because Well is the largest single shareholder in Rea, and Well's officers are a majority on Rea's board of directors, Well exercises significant influence over Rea. Rea reported net income of $500,000 for the year and paid dividends of $150,000. In its December 31 balance sheet, what amount should Well report as investment in Rea?

$435,000

Bier Corp. issued 400,000 shares of common stock when it began operations in Year 1 and issued an additional 200,000 shares in Year 2. Bier also issued preferred stock convertible to 200,000 shares of common stock. In Year 3, Bier purchased 150,000 shares of its common stock and held it in treasury. At the end of Year 3, how many shares of Bier's common stock were outstanding?

$450,000

On October 1, Bordeaux, Inc., a calendar year-end firm, invested in a derivative designed to hedge the risk of changes in fair value of certain assets, currently valued at $1.5 million. The hedge was determined to be highly effective. On December 31, the fair value of the hedged assets decreased by $350,000 and the fair value of the derivative increased by $345,000. Bordeaux should recognize a net effect on earnings for the year of:

$5,000

On June 27, Year 1, Marquis Co. distributed to its common shareholders 100,000 outstanding common shares of its investment in Chen Co., an unrelated party. The carrying amount on the books of Chen's $1 par common stock was $2 per share . Immediately after the distribution , the market price of Chen's stock was $2.50 per share . In its income statement for the year ended June 30 , Year 1, what amount should Marquis report as gain before income taxes on disposal of the stock ?

$50,000

The December 31, Year 7, condensed balance sheet of Moore and Daughter, a partnership, follows: Current Assets $280,000 Equipment (net). 260,000 -----------

$500,000

The following information was abstracted from the accounts of the Moore Corp. at year end: Total income since incorporation $840,000 Total cash dividends paid $260,000 Proceeds from sale of donated Travis Co. stock $90,000 Total Value of Stock dividends distributed $60,000 Excess of proceeds over cost of treasury stock sold $140,000 What should be the current balance of retained earnings?

$520,000

Anand Co. reported the following statement of: Common Stock, $5 par value authorized 200,000 shares issued 100,000 shares $500,000 Additional paid-in capital. $1,500,000 Retained Earnings $516,000 ----------- Minus: Treasury stock, at cost, 5,000 shares ($40,000) ----------- Total Equity $2,476,000 The following events occurred during the year: May 1 - 1,000 shares of treasury stock were sold for $10,000 June 9 - 10,000 shares of previously unissued common stock sold for $12 per share October 1 - The distribution of a 2-for-1 stock split resulted in the common stock's per-share par value being halved Anand accounts for treasury stock under the cost method. Laws in the state of Anand's incorporation protect shares held in treasury from dilution when stock dividends or stock splits are declared. In Anand's December 31 statement of equity, the par value of the issued common stock should be? The number of outstanding common shares at December 31 should be?

$550,000 212,000

Green Corp. owns 30% of the outstanding common stock and 100% of the outstanding noncumulative nonvoting preferred stock of Axel Corp. In Year 1, Axel declared dividends of $100,000 on its common stock and $60,000 on its preferred stock. Green exercises significant influence over Axel's operations and uses the equity method to account for the investment in the common stock. What amount of dividend revenue should Green report in its income statement for the year ended December 31, Year 1?

$60,000

During the current year, Moore Corp. had the following two classes of stock issued and outstanding the entire year: -100,000 shares of common stock, $1 par. - 1,000 shares of 4% convertible shares for share into common stock. This stock is cumulative, whether or not earned, and no preferred dividends are in arrears Moore's current-year net income was $900,000 and its income tax rate for the year was 30%. Diluted earnings per share (DEPS) for the current year are

$8.91

On January 2, Year 1, Adam Co. purchased as a long-term investment 10,000 Mill Corp. bonds for $40 per bond. These securities were properly classified as available for sale. On December 31, Year 1, the market price of the bonds was $35 per bond, resulting in an unrealized holding loss. On January 28, year 2, Adam sold 8,000 of the bonds for $30 per bond. For the year ended December 31, Year 2, Adam should report a realized loss on disposal of a long term investment of:

$80,000

On January 1, Welling Company purchased 100 of the $1,000 face value 8%, 10 year bonds of Mann, Inc. The bonds mature on January 1 in 10 years, and pay interest annually on January 1. Welling purchased the bonds to yield 10% interest. Information on present value factors is as follows: Present value of $1 at 8% for 10 periods 0.4632 Present value of $1 at 10% for 10 periods 0.3855 Present value of an annuity of $1 at 10% for 10 periods 6.7101 Present value of an annuity of $1 at 10% for 10 periods 6.1446 How much did Welling pay for the bonds?

$87,707

On July 1, Year 2, Year 2, York Co. purchased as a long term investment $1 million of Park, Inc.'s 8% bonds for $946,000, including accrued interest of $40,000. The bonds were purchased to yield 10% interest. The bonds were mature on January 1, Year 8, and pay interest annually on January 1. York uses the effective interest method of amortization. In its December 31, Year 2, balance sheet, what amount should York report as investment in bonds?

$911,300

On July 2, Year 4, Wynn, inc., purchased as a short term investment a $1 million face value Kean Co. 8% bond for $910,000 plus accrued interest to yield 10%. The bonds mature on January 1, Year 11 and pay interest annually on January 1. On December 31, Year 4, the bonds had a fair value of $945,000. On February 13, Year 5, Wynn report for the bond if it is classified as an available-for-sale security?

$945,000

On December 31, Year 4, the equity section of Spitz Co. was as follows: Common stock, par value $10: Authorized 30,000 shares issued and outstanding 9,000 shares $90,000 Additional paid-in capital $116,000 Retained Earnings $146,000 Total equity $352,000 On March 31, Year 5, Spitz declared a 10% stock dividend. Accordingly, 900 shares were issued when the fair value was $16 per share. For the 3 months ended March 31, Year 5, Spitz sustained a net loss of $32,000. The balance of Spitz's retained earnings as of March 31, Year 5, should be:

$99,600

Collins corp.'s capital structure was as follows: December 31 Year 4 Year 5 Outstanding shares of stock Common 100,000 100,000 Convertible preferred 10,000. 10,000 9% convertible bonds $1,000,000 $1,000,000 During Year 5, Collins paid dividends of $3 per share on its preferred stock. The preferred shares are convertible into 20,000 shares of common stock, and the 9% bonds are convertible into 30,000 shares of common stock. Assume that the income tax rate is 30% (a) If the net income for year 5 is $350,000, Collins should report DEPS as: (b) If the net income for Year 5 is $245,000, Collins should report DEPS as: (c) If net income for Year 5 is $170,000, Collins should report DEPS as:

(a) $2.75 (b) $2.04 (c) $1.40

Carolina Company is a calendar-year entity with a complex capital structure. Carolina reported a loss on discontinued operations (net of tax) of $1,200,000 in the first quarter when its income before the loss was $1,000,000. The average market price of Carolina's common stock for the first quarter was $25, the shares outstanding at the beginning of the period equaled 300,000, and 12,000 shares were issued on March 1. At the beginning of the quarter, Carolina had outstanding $2,000,000 of 5% convertible bonds, with each $1,000 bonds convertible into 10 shares of common stock. No bonds were converted. At the beginning of the quarter, Carolina also had outstanding 120,000 shares of preferred stock paying a dividend of $0.10 per share at the end of each quarter and convertible to common stock on a one-to-one basis. Holders of 60,000 shares of preferred stock exercised their conversion privilege on February 1. Throughout the first quarter, warrants to buy 50,000 shares of Carolina's common stock for $28 per shares were outstanding but unexercised. Carolina's tax rate was 30% (a) The control number for determining whether potential common shares are dilutive or anti dilutive is: (b) The weighted-average number of shares used to calculate DEPS amounts for the first quarter is: (c) The weighted-average number of shares used to calculate BEPS amounts for the first quarter is: (d) BEPS for the net income or loss is: (e) The difference between BEPS and DEPS for the loss on discontinued operations is: (f) The effect of assumed conversions on the numerator of the DEPS fraction is (g) DEPS for net income or loss is:

(a) $994,000 (b) 444,000 (c) 344,000 (d) -$0.60 (e) $0.79 (f) $23,500 (g) -$0.41

Colon Co. uses a calendar year for financial reporting. The company is authorized to issue 5 million shares of $10 par common stock. At no time has Colon issued any potentially dilutive securities. A two-for-one stock split of Colon's common stock took place on March 31, Year 4. Additional information is in the next column Number of common shares issued and outstanding at 12/31/Year 1 1,000,000 Shares issued as a result of a 10% stock dividend on 9/30/Year 2 100,000 Shares issued for cash on 3/31/Year 3 1,000,000 Number of common shares issued and Outstanding at 12/31/Year 3 2,100,000 (a) The weighted average number of common shares used in computing basic earnings per common share for year 2 on the year 3 comparative income statement was? (b) The weighted average number of common shares used in computing BEPS for Year 3 on the Year 3 comparative income statement was? (c) The weighted average number of common shares to be used in computing BEPS for Year 4 on the Year 4 comparative income statement is: (d) The weighted average number of common shares to be used in computing BEPS for Year 3 on the Year 4 comparative income statement is:

(a) 1,100,000 (b) 1,850,000 (c) 4,200,000 (d) 3,700,000

The Fleming Corporation had 200,000 shares of common stock and 10,000 shares of cumulative, 6%, $100 par preferred stock outstanding during the year just ended. The preferred stock is convertible at the rate of three shares of common per share of preferred. For the year, the company had a $30,000 net loss from continuing operations. Fleming should report loss per share (diluted) for the year of:

-$0.45

A Corporation issuing stock should charge retained earnings for the fair value of the shares issued in (a)

10% stock dividend

An entity authorized 500,000 shares of common stock. At January 1, Year 2, the entity had 110,000 shares of common stock issued and 100,000 shares of common stock outstanding. The entity had the following transactions in Year 2: March 1 Issued 15,000 shares of common stock June 1 Resold 2,500 shares of treasury stock September 1 Completed a 2-for-1 common stock split What is the total number of shares of common stock that the entity has outstanding at the end of Year 2?

235,000

Mann, Inc., had 300,000 shares of common stock issued and outstanding at January 1. On July 1, an additional 50,000 shares of common stock were issued for cash. Mann also had unexercised stock options to purchase 40,000 shares of common stock at $15 per share outstanding at the beginning and end of the year. The average market price of Mann's common stock was $20 during the year. What is the number of shares that should be used in computing diluted earnings per share (DEPS) for the year ended December 31?

335,000

Starks Corporation has 300,000 shares of common stock outstanding. The only other securities outstanding are 10,000 shares of 9% cumulative preferred stock with detachable warrants (10 warrants per preferred share). Each warrant provides for the purchase of one share of common stock at $72. For the year, net income was $1.6 million. During the year, the average market price of common stock was $125. The price at December 31 was $120. What number of shares should be used to determine diluted earnings per share?

342,400

On January 1, Point, Inc., purchased 10% of Iona Co.'s common stock. Point purchased additional shares bringing its ownership up to 40% of Iona's common stock outstanding on August 1. During October, Iona declared and paid a cash dividend on all of its outstanding common stock. How much income from the Iona investment should Point's income statement report?

40% of Iona's income for August 1 to December 31

The following information pertains to Jet Corp.'s outstanding stock for the year just ended: Common Stock, $5 par value: Shares outstanding 1/1 20,000 2-for-1 stock split 4/1 20,000 Shares issued, 7/1 10,000 Preferred stock, $10 par value, 5% cumulative: Shares outstanding, 1/1 4,000 What are the number of shares Jet should use to calculate basic earnings per share (BEPS) for the year just ended?

45,000

Rudd Corp. had 700,000 shares of common stock authorized and 300,000 shares outstanding at December 31, Year 3. The following events occurred during Year 4: January 31 Declared 10% stock dividend June 30 Purchased 100,000 shares August 1 Reissued 50,000 shares November 30 Declared 2-for-1 stock split At December 31, Year 4 how many shares of common stock did Rudd have outstanding?

560,000

Chape Co. had the following information related to common and preferred shares during the year: Common shares outstanding, 1/1 700,000 Common shares repurchased, 3/31 20,000 Conversion of preferred shares, 6/30 40,000 Common shares repurchased, 12/1 36,000 Chape reported net income of $2,000,000 at December 31. What amount of shares should Chape use as the denominator in the computation of basic earnings per share?

702,000

A derivative financial instrument is best described as:

A contract that has its settlement value tied to an underlying notional amount

Galarraga Co. completed a number of capital transactions during the fiscal year ended September 30 as follows: - An issue of 8% debentures was converted into common stock. - An issue of $2.50 preferred stock was called and retired - A 10% common stock dividend was distributed on November 30 -Warrants for 200,000 shares of common stock were exercised on September 20 For the year end financial statements to be sufficiently informative, Galarraga's most satisfactory method of presenting the effects of these events is:

A formal statement of changes in equity that discloses changes in the various equity accounts

Which of the following is a financial instrument?

A note payable in US treasury bonds

Treasury stock was acquired for cash at a price in excess of its original issue price. The treasury stock was subsequently reissued for cash at a price in excess of its acquisition price. Assuming that the par value method of accounting for treasury stock transactions is used , what is the effect on total equity of each of the following events?

Accusation of treasury stock: Decrease Reissuance of treasury stock: Increase

In determining earnings per share, interest expense, net of applicable income taxes, on dilutive convertible debt should be

Added back to net income for diluted earnings per share.

On November 2 , Year 3 , Finsbury , Inc. , issued warrants to its shareholders giving them the right to purchase additional $ 20 par value common shares at a price of $ 30 . The shareholders exercised all rights on March 1 , Year 4. The shares had market prices of $ 33 , $ 35 , and $ 40 on November 2 Year 3 , December 31 , Year 3 , and March 1 , Year 4 , respectively . What were the effects of the warrants on Finsbury's additional paid - in capital and net income?

Additional Paid-in capital: Increased in Year 4 Net Income: No effect

Posy Corp. acquired treasury shares at an amount greater than their par value but less than their original issue price. Compared with the cost method of accounting for treasury stock, does the par-value method report a greater amount for additional paid-in capital and a greater amount for retained earnings?

Additional paid in capital - No Retained Earnings - No

Knight Corp. holds 20,000 shares of its $10 par value common stock as treasury stock reacquired in Year 1 for $240,000. On December 12, Year 3, Knight reissued all 20,000 shares for $380,000. Under the cost method of accounting for treasury stock, the reissuance resulted in a credit to

Additional paid in capital of $140,000

When collectibility is reasonably assured, the excess of the subscription price over the stated value of the no par common stock subscribed should be recorded as:

Additional paid in capital when the Subscription is recorded

Effective April 27, the shareholders of Dorr Corp. approved a 2-for-1 split of its common stock and an increase in authorized common shares from 100,000 shares (par value $20 per share). Dorr's equity accounts immediately before issuance of the stock split shares were as follows: Common Stock, par value $20: 100,000 shares authorized 50,000 shares outstanding $1,000,000 Additional paid-in capital ($3 per share on issuance of common stock) $150,000 Retained Earnings $1,350,000 The stock split shares were issued on June 30th. In Dorr's June 30 statement of equity, the balances of additional paid in capital and retained earnings are

Additional paid in capital: $150,000 Retained earnings: $1,350,000

In Year 2, Fogg, Inc. Issued $10 par value common stock for $25 per share. No other common stock transactions occurred until March 31, Year 4, when Fogg Acquired some of the issued shares for $20 per share and retired them. Which of the following statements accurately states an effect of this acquisition and retirement?

Additional paid-in capital is decreased

In computing diluted earnings per share (DEPS), the equivalent number of shares of convertible preferred stock is added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is preferred as to dividends, which amount should be added as an adjustment to the numerator (earnings available to common shareholders)?

Annual preferred dividend

Band Co. uses the equity method to account for its investment in Guard, Inc. common stock. How should Band record a 2% stock dividend received from Guard?

As a memorandum entry reducing the unit cost of all Guard stock owned

A company's convertible debt securities are both a potential common stock and dilutive in determining earnings per share. What would be the effect of these securities on the calculation of basic earnings per share (BEPS) and dilutive earnings per share (DEPS)?

BEPS: No effect DEPS: Decrease

In a diluted earnings per share computation, the effect of outstanding call options and warrants issued by the reporting entity is reflected by applying the treasury stock method. If the exercise price of these options or warrants exceeds the average market price, the computation would:

Be antidilutive

The if-converted method of computing diluted earnings per share (DEPS) amounts assumes conversion of convertible securities at the:

Beginning of the earliest period reported (or at time of issuance, if later).

Under the treasury stock method, the DEPS calculation is based on the assumption that call options and warrants issued by the reporting entity and outstanding for the entire year were exercised at the:

Beginning of the period and that the funds obtained thereby were used to purchase common stock at the average market price during the period.

How are partially paid stock subscriptions treated in the computation of EPS?

By use of the treasury stock method.

The senior accountant for Carlton Co., a public company with a complex capital structure, has just finished preparing Carlton's income statement for the current fiscal year. While reviewing the income statement, Carlton's finance director noticed that the earnings-per-share data has been omitted. What changes will have to be made to Carlton's income statement as a result of omission of the earnings per share data

Carlton's income statement will have to be revised to include the earnings per share data.

An investor purchased a bond classified as a long term investment between interest dates at a discount. At the purchase date, the carrying amount of the bond is more than the:

Cash paid to Seller: No Face Amount of Bond: No

On December 1, Year 4, shares of authorized common stock were issued on a subscription basis at a price in excess of par value. A total of 20% of the subscription price of each share was collected as a down payment on December 1, Year 4, with the remaining 80% of the subscription price of each share due in Year 5. Collectibility was reasonably assured. At December 31, Year 4, the equity section of the balance sheet should report additional paid- in capital for the excess of the subscription price over the par value of the shares of common stock subscribed and

Common Stock subscribed for the par value of the shares of common stock subscribed

On February 1, Hyde Corp. a newly formed company, had the following stock issued and outstanding: -Common Stock, no par, $1 stated value, 10,000 shares originally issued for $15 per share -Preferred stock, $10 par value, 3,000 shares originally issued for $25 per share Hyde's February 1 statement of equity should report

Common Stock: $10,000 Preferred Stock: $30,000 Additional paid in capital: $185,000

During the prior year, Brad Co. issued 5,000 shares of $100 par-value convertible preferred stock for $110 per share . One share of preferred stock can be converted into three shares of Brad's $25 par-value common stock at the option of the preferred shareholder . On December 31 of the current year, when the market value of the common stock was $40 per share, all of the preferred stock was converted . What amount should Brad credit to common stock and to additional paid -in capital common stock as a result of the conversion?

Common Stock: $375,000 Additional paid in capital $175,000

With repect to the computation of earnings per share, which of the following would be most indicative of a simple capital structure?

Common stock, preferred stock, and debt outstanding

The acquisition of treasury stock will cause the number of shares outstanding outstanding to decrease if the treasury stock is accounted for by the

Cost method - Yes Par Value Method - Yes

Under the measurement alternative for an investment in equity securities, the investment is measured at

Cost minus subsequent impairment, plus or minus changes resulting from observable price changes for the identical or a similar investment of the same issuer

East Corp. , a company with a fiscal year end on October 31 , had sufficient retained earnings as a basis for dividends but was temporarily short of cash. East declared a dividend of $100,000 on Feb. 1, Year 3, and issued promissory notes to its shareholders in lieu of cash. The notes, which were dated February 1, Year 3, had a maturity date of January 31, Year 4, and a 10% interest rate. How should East account for the scrip dividend and related interest?

Debit retained earnings for $100,000 on February 1, Year 3 and debit interest expense for $7,500 on October 31, Year 3.

On June 1, Ligtenberg Company's board of directors declared a cash dividend of $1.00 per share on the 50,000 shares of common stock outstanding. The company also has 5,000 shares of treasury stock. Shareholders of record on June 15 are eligible for the dividend, which is to be paid on July 1. On June 1, the company should

Debit retained earnings for $50,000

When the fair value of an investment in debt securities exceeds its amortized cost, how should each of the following debt securities be measured at the end of the year, given no election of the fair value option?

Debt Securities classified as: Held to maturity: Amortized cost Available for sale: Fair value

An entity declared a cash dividend on its common stock on its common stock on December 15, year 1, payable on January 12, Year 2. How would this dividend affect equity on the following date?

Dec. 15 Year 1 - Decrease Dec. 31 Year 1 - No effect Jan. 12 Year 2 - No effect

Treasury stock transactions may result in

Decreases in the balance of retained earnings

An increase in the cash surrender value of a life insurance policy owned by a company is recorded by:

Decreasing annual insurance expense

Loan origination fees are charged to the borrower in connection with originating, refinancing, or restructuring a loan (e.g., points, lending fees, etc.). Loan origination fees should be:

Deferred and recognized in income over the life of the loan by the interest method.

At December 31, Year 3 and 4, Apex Co. had 3,000 shares of $100 par, 5% cumulative preferred stock outstanding. No dividends were in arrears as of December 31, Year 2. Apex did not declare a dividend during Year 3. During Year 4 Apex paid a cash dividend of $10,000 on its preferred stock. Apex should report dividends in arrears in its Year 4 financial statements as a(n)

Disclosure of $20,000

A property dividend should be recorded in retained earnings at the property's

Fair value at date of declaration

A measurement alternative may be elected for an investment in equity securities if the

Fair value of the investment is not readily determinable and the investment does not result in control or significant influence over the investee

A measurement alternative may be elected for an investment in equity securities if the:

Fair value of the investment is not readily determinable and the investment does not result in control or significant influence over the investee

An entity should report an investment in marketable equity securities that does not result in significant influence or control over the investee at

Fair value, with holding gains included in earnings only to the extent of previously recognized holding losses

Peel Co. received a cash dividend from a common stock investment. Should Peel report an increase in the investment balance if it uses the fair value method or the equity method of accounting?

Fair value: No Equity: No

When the hedge is highly effective, a loss arising from the decrease in fair value of a derivative is included in current earnings if the derivative qualifies and is designated as a:

Fair-Value Hedge: Yes Cash-flow Hedge: No

Garcia Corporation has entered into a binding agreement with Hernandez Company to purchase 400,000 pounds of Colombian coffee at $2.53 per pound for delivery in 90 days. This contract is accounted for as a:

Firm commitment

Neron Co. has two derivatives related to two different financial instruments, instrument A and instrument B, both of which are debt instruments. The derivative related to instrument A is a fair value hedge, and the derivative related to instrument B is a cash flow hedge. Neron experienced gains in the value of instruments A and B due to a change in interest rates. Which of the gains should be reported by Neron in its income statement?

Gain in value of Debt Instrument A: Yes Gain in value of Debt Instrument B: No

Orr corporation owned 1,000 shares of Vee Corporation. These Shares were purchased for $9,000. On September 15, Orr declared a property dividend of one share of Vee for every 10 shares of Orr held by a shareholder. On that date, when the market price of Vee was $14 per share, 9,000 shares of Orr were Outstanding. This transaction did not constitute a spinoff or other form of reorganization or liquidation and was not part of a plan that was in substance a rescission of a prior business combination. What gain and net reduction in retained earnings would result from this property dividend?

Gain: $4,500 Net reduction in Retained earnings $8,100

Investments in debt securities may be classified as I. Available-for-sale securities II. Held-to-maturity securities III. Trading securities

I, II, and III

For available-for-sale debt securities included in noncurrent assets, which of the following amounts should be included in the period's net income? I. Unrealized holding losses during the period II. Realized gains during the period III. Changes in fair value during the period

II only

With regard to stock dividends and stock splits, current authoritative literature contains what general guideline for the computation of EPS?

If changes in common stock resulting from stock dividends, stock splits, or reverse splits have been consummated after the close of the period but before completion of the financial report, the per-share computations should be based on the new number of shares

Earnings per share data must be reported on the face of the income statement for

Income from continuing operations: Yes Cumulative effect of a change in accounting principle: No

An investor uses the equity method to account for an investment in common stock. After the date of acquisition, the investment account of the investor is

Increased by its share of the earnings of the investee, and is decreased by its share of the losses of the investee

The issuance of shares of preferred stock to shareholders

Increases preferred stock outstanding

When bonds with detachable stock warrants are purchased, the amount debited to investment in stock warrants relative to the total amount paid

Increases the discount on investment in bonds

In Year 5, Lee Co. acquired, at a premium, Enfield, Inc., 10-Year bonds as a long term investment. At December 31, Year 6, Enfield's bonds were quoted at a small discount. Which of the following situations is the most likely to cause of the decline in the bonds fair value?

Interest rates have increased since Lee purchased the bonds

Park Co. uses the equity method to account for its January 1, purchase of Tun, Inc.'s common stock. On January 1, the fair values of Tun's FIFO inventory and land exceeded their carrying amounts. How do these excesses of fair values over carrying amounts affect Park's reported equity in Tun's Year 1 earnings?

Inventory Excess: Decrease Land excess: No effect

X company owns 15% of the voting stock of Y Co. and 25% of the voting stock of Z Co. X has not elected the fair value option. Under what circumstances should X account for each investment using the equity method?

Investment in Y: Only if X has the ability to exercise significant influence over Y Investment in Z: Only if X has the ability to exercise significant influence over Z

On September 1, the Consul Company acquired $10,000 face value, 8% bonds of Envoy Corporation at 104. The bonds were dated May 1 and mature in 5 years on April 30, with interest payable each October 31 and April 30. What entry should Consul make to record the purchase of the bonds?

Investment in bonds $10,400 Interest receivable $266 Cash $10,666

A corporation that uses the equity method of accounting for its investment in a 40% - owned investee that earned $20,000 and paid $5,000 in dividends made the following entries: Investment in subsidiary $8,000 Equity in earnings of subsidiary $8,000 Cash $2,000 Dividend revenue $2,000 What effect will these entries have on the parent's statement of financial position?

Investment overstated, retained earnings overstated

Of the 125,000 shares of common stock issued by Vey Corp. 25,000 shares were being held as treasury stock at December 31, Year 3. During Year 4, transactions involving Vey's common stock were as follows: January 1 through October 31 - 13,000 treasury shares were distributed to offices as part of a stock compensation plan November 1 - A 3-for-1 stock split took effect December 1 - Vey Purchased 5,000 of its own shares to discourage an unfriendly takeover. These shares were not retired. At December 31, Year 4 how many shares of Vey's common stock were issued and outstanding?

Issued 375,000. Outstanding: 334,000

Whether recognized or unrecognized in an entity's financial statements, disclosure of the fair values of the entity's financial instruments is required when

It is feasible to estimate those values and aggregated fair values are material to the entity.

On January 15, Year 5 Rico Co. declared its annual cash dividend on common stock for the year ended January 31, Year 5. The dividend was paid February 9, Year 5 to shareholders of record as of January 28th, Year 5. On what date should Rico decrease retained earnings by the amount of the dividend?

January 15, Year 5

Disclosure of information about significant concentrations of credit risk is required for:

Most financial instruments

On incorporation, Dee, Inc., issued common stock at a price in excess of its par value. No other stock transactions occurred except that treasury stock was acquired for an amount exceeding this issue price. If Dee uses the par value method of accounting for treasury stock appropriate for retired stock, what is the effect of the acquisition on the following?

Net common stock: Decrease Additional paid in capital: Decrease Retained Earnings: Decrease

The present value of cash flows expected to be collected from an available-for-sale security is less than its amortized cost basis. This impairment is recognized in:

Net income as a credit loss

In determining diluted earnings per share for a complex capital structure, which of the following is a potential common stock?

Non-convertible preferred stock: No Stock option: Yes

At December 31, Year 5, Chipper Corporation has the following account balances: Common stock ($10 par, 50,000 shares issued) -$500,000 8% preferred stock ($50 par, 10,000 shares issued) -$500,000 Paid in capital in excess of par on preferred stock -$20,000 Retained Earnings -$600,000 The preferred Stock is cumulative, nonparticipating, and has a call price of $55 per share. Chipper's journal entry to record the redemption of all preferred stock on January 2, Year 6, pursuant to the call provision is:

Preferred stock $500,000 Paid in capital in excess of par. $20,000 (preferred) Retained Earnings $30,000 Cash $550,000

The nature of the adjustment for stock options in the calculation of diluted earnings per share can be described as:

Pro forma because it indicates potential changes in the number of share

The Preemptive right of shareholders is the right to

Purchase shares of stock on a pro rata basis when new issues are offered for sale

When computing diluted earnings per share (DEPS) convertible securities that are potential common stock are?

Recognized only if they are dilutive

Instead of the usual cash dividend, Evie Corp. declared and distributed a property dividend from its overstocked merchandise . The excess of the merchandise's carrying amount over its fair value should be

Reported as a reduction in operating income

An amount representing the difference between the carrying amount and the proceeds from the purchase and resale of treasury stock may be reflected only in

Retained Earnings and paid in capital accounts

A company whose stock is trading at $ 10 per share has 1,000 shares of $ 1 par common stock outstanding when the board of directors declares a 30 % common stock dividend Which of the following adjustments should be made when recording the stock dividend?

Retained earnings is debited for $300

At its date of incorporation , Glean , Inc. issued 100,000 shares of its $10 par common stock $11 per share . During the current year , Glean acquired 30,000 shares of its common stock at a price of $ 16 per share and accounted for them by reissued at a price of $12 per share Glean had the cost method . Subsequently , these shares were made reissued at a price of $12 per share. Glean had made no other issuances or acquisitions of its own common stock . What effect does the reissuance of the stock have on the following accounts ?

Retained earnings: decrease additional paid in capital: no effect

A firm has basic earnings per share of $1.29. If the tax rate is 30%, which of the following securities would be dilutive?

Seven percent convertible bonds, issued at par, with each $1,000 bond convertible into 40 shares of common stock.

If the reporting entity has not elected the fair value option, the equity method of accounting for investments in common stock

Should be used in accounting for investments in common stock of corporate joint ventures

Which of the following is an election date for the purpose of determining whether to elect the fair value option (FVO)?

The Accounting for an equity investment changes because the entity no longer consolidates a subsidiary

Which of the following is the primary element that distinguishes accounting for corporations from accounting for other legal forms of business entity (such as partnerships)

The Corporation draws a sharper distinction in accounting for sources of capital

In calculating annual diluted earnings per share, which of the following should not be considered?

The amount of cash dividends declared on common shares

A company has a 22% investment in another company that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements?

The company 's accounting policy for the investment

Quoit, Inc., issued preferred stock with detachable common stock warrants. The issue price exceeded the sum of the warrants' fair value and the preferred stocks' par value . The preferred stocks' fair value was not determinable. What amount should be assigned to the warrants outstanding?

The fair value of warrants

The criterion for determining whether an entity may apply the entity method is the ability to exercise significant influence over the inventee. An investor who owns 30% of the voting common stock of the investee is most likely to exercise significant influence when:

The majority ownership of the investee is spread among a large group of shareholders who have objectives with respect to the investee that differ from those of the investor

In its financial statement, Pulham Corp. uses the equity method of accounting for its 30% ownership of Angeles Corp. At December 31, Year 4 Pulham has a receivable from Angles. How should the receivable be reported in Pulham's Year 4 financial statements?

The total receivable should be disclosed separately

In Year 1, a company reported in other comprehensive income an unrealized holding loss on an investment in available for sale debt securities. During Year 2, these securities were sold at a loss equal to the unrealized loss previously recognized. The reclassification adjustment should include which of the following?

The unrealized loss should be credited to the other comprehensive income account

When a company reports amounts for basic and diluted earnings per share

They should be presented with equal prominence on the face of the income statement

In Year 3, Seda Corp. acquired 6,000 shares of its own $1 par value common stock at $18 per Share. In Year 4, Seda reissued 3,000 of these shares at $25 per share. Seda uses the cost method to account for its treasury stock transactions. What accounts and amounts should Seda credit in Year 4 to record the reissuance of the 3,000 shares?

Treasury Stock: $54,000 Additional paid in capital: $21,000 Retained earnings: -- Common Stock: --

On January 1, Year 1, Mega Corp. acquired 10% of the outstanding voting stock of Penny, Inc. On January 2, Year 2, Mega gained the ability to exercise significant influence over financial and operating control of Penny by acquiring an additional 20% of Penny's outstanding stock. Mega did not elect the fair value option for its investment in Penny. The two purchases were made at prices proportionate to the value assigned to Penny's net assets, which equaled their carrying amounts. Hence no adjustment to investment income for acquisition differentials is necessary. For the years ended December 31, Year 1 and Year 2, Penny reported the following: Year 1 Year 2 Dividends paid: $200,000 $300,000 Net Income: 600,000. 650,000 In Year 2 what amounts should Mega report as current year investment income and as an adjustment, before income taxes, to Year 1 investment income?

Year 2 investment income: $195,000 Adjustment to Year 1 investment income: $0

In computing the loss per share of common stock, cumulative preferred dividends not earned should be

added to the loss for the year

Sanderson Company effects self-insurance against loss from fire by appropriating an amount of retained earnings each year equal to the amount that would otherwise be paid out as fire insurance premiums According to current accounting literature , the procedure used by Sanderson is

Acceptable provided that fire loses are not charged against appropriation

Investments classified as held-to-maturity debt securities should be measured at

Amortized cost